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Poor, Misunderstood Bill Gross Never Said Stocks Are Dead

If corporate culture is not focused on long-term shareholder value then investors shouldn't kid themselves into having long-term disproportionate positions in any one company. Today's investors/shareholders are much more skeptical about maintaining a long term position to allow your "money to do the hard work."

So if this is part of what Gross means, then I unfortunately agree with him.

3. Gross' analysis of stock value growth versus gross domestic product leaves me wondering a bit.

I spoke with a colleague, who is much smarter than I am, about this analysis. My question was: Isn't Gross missing something by just looking at the Standard & Poor's 500? What about those companies that never made it to the S&P 500 and have since gone by the wayside?

Did they not contribute to economic growth, as well, even though they are not reflected in the S&P 500 and didn't their shareholders lose out? Although my colleague agreed that I had something, he stated that there are even more private companies that were never, and will never, be measured by the S&P 500. They contributed to government, laborers and lenders, but cannot be measured by the index.

For another AdviceIQ advisor's take on Bill Gross's "cult of equity" statement, arguing that it's bonds, not stocks, which are "dying," click here .

The other thing that he pointed out was that dividends are not considered. If a the long-term real stock market growth is tied to real GDP growth plus the dividend yield, then it seems reasonable for an investor to get a long-term (as opposed to "really long" term) 6.6% real return.

4. Additionally Gross suggests a 4% nominal return on stocks.

I don't know where this comes from since I think everyone anticipates that an inflation rate of at least 2% to 3% over the next 10 years is the most likely course. It would imply a real equity return of no greater than 2%. That seems a bit too low. I am not smart enough to predict what equities will return for investors, but common sense tells me that it will be some time before we see the average gains that we saw the last 30 years.

5. But when his discussion turned to return expectations of a portfolio of stocks and bonds - that is where I think he is right on.

Investors must get used to the idea that a reasonably balance portfolio, whether it is 70% equities/30% bonds or 50% equities/50% bonds, is not going to deliver what investors have become used to. They must accept this and understand that their money is not going to do the hard work like it used to and that they are going to have to work longer for their money.

So are stocks dead? No! And I don't think that is what Gross was saying.

I think his message is that the "cult of equity" that believes that I can just sock my money away into a benevolent company's stock and let it "work" for my early retirement or even normal retirement is dying.

That people will have to work longer, pension funds will need more funding, and that the paradigm of 8% returns from a portfolio of 60% company stocks and 40% bonds is gone - at least for some extended time.

--By Jeffrey Baumert, a partner at Advisor Financial Services in Woodstock, Ga., for AdviceIQ

AdviceIQ is a network of financial advisors that writes insightful articles for the public about investing and wealth management. All articles are edited by AdviceIQ's editor in chief, Larry Light. AdviceIQ certifies that all its advisors have no regulatory infractions.

To subscribe to AdviceIQ's Rss feed for personal finance articles written by financial advisors and AdviceIQ editors, click here .

Follow AdviceIQ on Twitter at @adviceiq.

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